Should we Incorporate?
Table of Contents
Are you part of a group, club, or society thinking of incorporating? Then you’re in the right place.
Maybe a member of your group, consultant, or community member suggested that you incorporate. Before you rush into a legally binding decision, let’s explore:
- What incorporation means
- When you should, and shouldn’t, incorporate
- The pros and cons of incorporation
What Incorporation Means
When your group becomes an incorporated association, it becomes a legal entity separate from its members. This means your organisation now has legal rights and responsibilities.
As a separate legal entity, your organisation will be responsible for any debts, compensation or legal issues brought against it.
Incorporation gives members of your organisation limited liability for debts and liabilities (as long as they fulfill their legal obligations). In other words, following good governance can protect you from being personally sued.
Should you Incorporate?
t’s not a legal obligation for your group to incorporate and in fact, not every group should incorporate.
There are other ways to do your work without having to incorporate, such as partnerships or an auspicing arrangement.
Before you decide to incorporate, ask your members the following questions:
- Can you clarify in writing how your organisation will be different to similar incorporated organisations?
- Does your organisation exist for a clear and defined purpose?
- Can you clearly picture the future of your organisation in 5-10 years?
- Are you incorporating solely to achieve a short term project?
If you answered no to questions 1,2, or 3, this is a sign that incorporation might not be the right choice for your organisation.
If you answered yes to question 4, incorporating probably isn’t the right step to achieve one short term goal. Have you considered partnering with another local organisation that’s already incorporated?
Being incorporated means there will be ongoing fees, reporting and legal obligations to keep in mind. If you are still unsure, speak to a solicitor, business advisor, accountant, or funding body for advice.
Pros and Cons
- The purpose and objectives of your organisation will be clearly defined
- Your organisation will continue to exist, despite any membership changes
- You’ll be eligible to apply for wider range of funds and grants
- Limited financial and legal liability of individual members
- Ability to accept gifts and legacies under a Will
- Sign and enter into contracts as an organisation
- Create a bank account/online banking in the name of your association
- Your organisation will be able to buy, sell and own property under its name
- Incorporation fees
- Ongoing annual fees
- Annual financial reporting requirements
- Operate according to your legally binding constitution
- Minimum required number of members and office bearers
- Reduced flexibility in running your organisation and meetings
- Legally required to take minutes of each meeting
- Financial statements and membership records are open to public scrutiny
Becoming an incorporated association has many benefits and also many legal obligations. Organisations need to carefully consider their individual circumstances before incorporating. There are many professionals you can contact for advice.